2 SFHs, looking to move to MF. Sell or Refiance?

Question

Currently I have two Single Family rentals, both were primary residences at one point. They cash flow $587/month together. There is probably about $30k each in equity. I am going to focus on 5+ unit multifamily next. I only have about $20k available for new investing. Should I refi and take some equity out to get my next bigger deal? Or sell? Or keep things like they are and just shoot for a deal where I don’t bring cash to the table but work with some investors who’ll provide all the capital I need. Thoughts? Houses are in La and Ga so neither are local to where I am currently.

-Jonathan.

Jonathan Ard · Answer

@Dan Mumm

Well, I have really run these properties like a business (keeping reserve, running CoC, annual return, growth... etc) I’ve had them both for over 14 years and this is the first big expenditure I’ve had so now that I’m looking to move into being more deliberate expand I’m shifting my record keeping to be in line with everything I’ve been learning in the last few months. The CapEx has been paid for and I’ve recently paid off all my personal debt (unsecured) so I really just consider it cash flowing at this point. The tenants I have now on the leases will be at each property long enough to cover the cost of the work I had to put in to them.

Dan Mumm · Answer

There's some good info in here. If you are back-filling your reserves with the cashflow, then I wouldn't really consider this $587 to be free cashflow. This probably was in reality a capital expense you incurred last year with the rehab you did. In this case, it is sounding like these properties may not be as big of cash cows as they initially seemed. This may be good reason to consider selling. I was giving my recommendation to hold assuming that the $587 was completely free cashflow after all expenses.

Dan Mumm · Answer

@Travis DeForge , this type of return in LV (although his aren't here) just depends on the price point, asset class (C/B/A properties), and when they were purchased. For an average $250k home that you could spend $55k on (20% down plus closing costs), you could expect a 3.5% cash on cash in the CURRENT MARKET in a decent area which would equate to $160/mo in free cash flow. So, $587 for 2 isn't crazy if he bought them when the prices were down back in 2010-2011. Let me know if you want more info on investing here, I'm a local agent and investor and I service the surrounding areas as well.@Jonathan Ard , my advice would be to hold, and start bankrolling your next investment from the cashflow you're getting currently, combined with income you are able to bring in from other sources.  Personally, I roll all of my cashflow from my investments into my next investment and never touch them for anything other than servicing the property. This is assuming this $587 is free cash flow after expenses (management, taxes/insurance, capex, repairs, vacancies, etc). A lot would depend though on how much you spent to get the $587/mo. Refinancing/line of credit is probably not going to bring enough capital.

Bill B. · Answer

I don’t see how you could refinance. Usually you can only pull 75% of the value out. Unless they properties ar worth less than $100k each there’s nothing to take out. Even if they were only worth $80k you’d only get $10k each minus costs

You’re making 12% cash in cash which means you’re probably making closer to 20% on your money after principal paydown. I don’t see how you’re going to do much better.

Maybe you could househack a fourplex, but beyond that, your returns definitely won’t be that good in 5+ MF.